What Basis Can I Use For Depreciation?
I purchased a home 8 years ago for 90K. I lived in it for a year, moved out, rented it for a year and claimed depreciation on it based on 90k, got married moved back in. We lived there for 6 years during which we improved it (bathroom redo, new roof, etc.,etc.) It now appraises for 133K. We have recently moved on and now are renting it again.
Do I have to continue the depreciation schedule I started 6 years ago? Do I start over at current market value? Must I establish our cost basis by figuring out purchase price + improvements?
Also, where is a good source for information about the categories and timetables for accelerated depreciation? (ie. structure is 27years, driveway is 12 or something like that.)
Your basis for depreciation is your actual cost of the structure plus the cost of any improvements to the structure.
Land is not depreciable. If you paid $90K for the property, you need to subtract the value of the land at the time of purchase -- allocating 25% of the purchase price to the land is usually pretty safe. This means that your intial depreciation basis was around $67,500.
The cost of your improvements are added to $67,500 to arrive at your new depreciation basis. However, since you already took some depreciation, you subtract the depreciation already taken.
The number you have after all these adjustments is what I suggest you use for your depreciation basis this time. The recovery period for residential property is 27.5 years. The IRS has depreciation tables which tell you what depreciation you are allowed depending upon the month you place the property in service as a rental.
[ Edited by NewKidinTown2 on Date 11/13/2004 ]